The New Mexico Taxation and Revenue Department released the 2019 wage-bracket and percentage method tables for state income tax withholding. The annual percentage method tables remain unchanged from June 2018. (Publication FYI-104, New Mexico Withholding Tax, effective January 1, 2019; EY Payroll Newsflash Vol. 19, #103, 6-13-2018.)

The New Mexico Taxation and Revenue Department released revised 2018 wage-bracket and percentage method tables for state income tax withholding in June 2018 to take into account changes due to the federal Tax Cut and Jobs Act (TCJA) in 2017.

Supplemental withholding rate remains the same

If the federal withholding is calculated using a supplemental rate, a flat 4.9% of the supplemental wage or fringe benefit amount should be withheld for New Mexico state income tax withholding purposes. The same method used for calculating federal withholding on irregular or supplemental wages should be used for New Mexico income tax withholding. An employer that uses the cumulative method of withholding for federal withholding may use this same method for New Mexico state income tax withholding.

If an employee has elected married but withholds at a higher single rate for federal income tax withholding, the single rate for New Mexico state withholding purposes must also be used.

Cautionary note about Form W-4 used for New Mexico income tax withholding

As we reported previously, New Mexico continues to use federal Form W-4 for state income tax withholding purposes. There is no state-specific withholding allowance certificate. The Department does note, however, that due to changes in federal law, state income tax liability is not reduced based on personal allowances claimed by New Mexico taxpayers. Further, although the federal standard deduction amount was increased for all taxpayers, the New Mexico income tax liability for 2019 will likely increase for households with two or more dependents.

As a result, the 2019 New Mexico withholding tables reflect the federal changes by limiting the withholding allowance exemption to no more than three. Employees with more than three allowances may see an increase in their 2019 state income tax withholding as a result of the changes to federal law. Even after these changes, there is an increased likelihood that such households will be under-withheld for New Mexico income tax purposes. Employees claiming more than three allowances may wish to submit a revised Form W-4 to their employer, reducing the allowances they claim for New Mexico income tax withholding purposes to three or fewer.

2018 Form W-2 reporting reminders

As we reported previously, legislation requires that effective with Forms W-2 filed in 2020, all employers are required to file Forms W-2 with the Department by an accelerated deadline of January 31 and employers filing 25 or more Forms W-2 are required to file electronically. (HB 276, Chapter 59, signed by the governor on March 2, 2018; EY Payroll NewsFlash Vol. 19, #062, 3-14-2018; email response to inquiry.)

Current law requires employers to file Forms W-2 with the Department by February 28 only if quarterly withholding or unemployment tax returns are not filed by the employer. Applicable employers that file 50 or more Forms W-2 are required to file electronically.

To allow employers to prepare for the transition to electronically filing Forms W-2 with the state, the Department will be accepting electronic submissions starting January 1, 2019 for the 2018 tax year via the Department's electronic reporting system (TAP).

The new requirement also applies to payers of pensions and annuities that withhold New Mexico state income tax from such payments.

For more information on state withholding tax and the current electronic filing specifications (FYI-330) for filing Forms W-2 with the Department, go here.

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EY Payroll News Flash